ING reports that downside risks remain for EUR/USD, with markets now reacting less to positive Middle East news. The level of 1.1570 is described as the next support to monitor.
On 3 March, at the start of the conflict, EUR/USD fell below 1.160 for the first time. The pair also gapped lower after breaking 1.1570.
Downside Risks And Key Support
Positioning is described as more balanced, which may reduce the chance of abrupt technical sell-offs. At the same time, the macro backdrop is described as less supportive for the euro as US dollar rates rise.
The two-year EUR:USD swap spread is reported to have widened to about -100bp, from a peak of -65bp in early April. Rising US rates are linked to weaker risk sentiment and a reversal of earlier rate-differential tightening that had supported EUR/USD during the energy crisis.
Looking back, the analysis from mid-2025 was correct, as risks for EUR/USD were indeed skewed to the downside. The break below the key 1.1570 support level did occur later that year, driven by the widening rate differentials that favored the US Dollar. That period taught us to respect the power of central bank divergence on this currency pair.
Today, on May 20, 2026, we see a similar but more pronounced pattern developing which suggests initiating bearish derivative strategies. The two-year EUR:USD swap spread has widened even further to -125 basis points, a level not seen since the sharp downturn in 2025. This indicates that interest rate markets are pricing in a much more aggressive Federal Reserve compared to the European Central Bank.
Levels To Watch And Strategy
This policy divergence is backed by fresh economic data that is unsupportive for the euro. Germany’s latest IFO Business Climate index just came in at a disappointing 91.5, while last week’s US retail sales figures beat expectations, rising 0.6% month-over-month. This fundamental weakness in Europe versus resilience in the US reinforces the bearish macro environment.
Market positioning reflects this souring sentiment, with the most recent CFTC report showing that speculative net-long positions in the euro have been unwound for the fifth consecutive week. We believe buying EUR/USD put options with a one-month expiry is a prudent way to position for a potential decline. This approach allows traders to capitalize on downside momentum while strictly defining their maximum risk.
The key levels to watch have shifted lower since last year. Any brief rally towards the 1.1400 resistance level should be viewed as a selling opportunity. We anticipate a retest of the 1.1250 support zone in the coming weeks, and a break below that could accelerate the move down towards 1.1100.
